Obama's challenge: Implement health reform while cutting back

President Obama faces two major challenges when he unveils his health budget Monday: showing that he’s serious about fiscal discipline while making sure implementation of his healthcare reform law has a clear path.

His health budget will receive extra scrutiny this year given that his fiscal commission called healthcare spending the nation’s “single largest fiscal challenge” and Republicans are angling to defund the law.

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But Obama’s budget likely won’t provide too many surprises because the reform law has already done a lot of the heavy lifting on spending cuts, lobbyist sources said on Friday. The Affordable Care Act slows the growth of Medicare spending by about $500 billion over 10 years.

"After all that was done to the program in the ACA, I’m hearing likely no big surprises [for Medicare],” a well-connected Democratic health policy consultant told The Hill.

Implementing the reform law could be trickier, though. Republicans, unable to get a repeal vote through the Democratic-controlled Senate, are pushing for a seven-month spending bill that would choke off funding to implement the reform law.

Obama will likely advocate a small bump for the Centers for Medicare and Medicaid Services to implement the reform law, but nothing that would attract too much attention, said Dan Mendelson, CEO of Avalere Health consulting firm and former associate director for health in President Clinton’s budget office.

“What the administration will likely do is come in with a modest budget request for CMS so they can enter into that discussion saying, ‘We’re not looking for a big increase,’” Mendelson said. “That’s important for their credibility, and that will be a first step in the negotiations.”

There’s expectation that Obama will borrow from some deficit commission recommendations. The commission failed to gain supermajority support to advance the recommendations to Congress, but some have bipartisan support.

In particular, Obama may propose extending a Medicaid prescription drug rebate to so-called “dual eligibles,” who are seniors with greater healthcare needs who qualify for Medicare and Medicaid. The deficit commission said this would save $7 billion through 2015 and $49 billion through 2020.

Obama may also look for savings by limiting graduate medical education payments and indirect costs. The commission recommendations projected savings of $6 billion by 2015 and $60 billion through 2020.

Ending Medicare payment for bad debts may be another route. It would save $23 billion over 10 years by cutting Medicare reimbursements to providers for unpaid deductibles and co-pays, the deficit commission said.

The administration is unlikely to touch the broken Medicare physician payment system, Mendelson said. Congress voted five times last year to delay massive cuts in Medicare reimbursements to physicians, and members from both parties are calling for a more permanent fix to the payment formula – known as the Sustainable Growth Rate (SGR) – before the most recent $19 billion patch expires at the end of the year.

“They don’t have the money to fix it, otherwise it throws off the rest of the budget, so I don’t expect there to be anything except a few words on it,” Mendelson said.

The administration’s budget may also spell out proposals for a new long-term insurance program included in the healthcare reform law. Earlier this week, Health and Human Services Secretary Kathleen Sebelius announced the administration would toughen eligibility requirements to ensure sustainability of the Community Living Assistance Services and Supports (CLASS) Act. Concerns about the long-term financial health of the program prompted the president’s debt commission to recommend overhauling or repealing it entirely.

An Office of Management and Budget memo from last summer obtained by The Hill last year outlines health-related science and technology priorities for the fiscal 2012 budget. It calls for prioritizing research investments in technologies “that have the potential to accelerate the pace of discovery in the life sciences,” as well as investments to reduce the time needed to develop vaccines for future pandemics.

That may conflict with Republican spending priorities, however. Their spending bill, previewed this week, would slash $1 billion from the National Institutes of Health and $755 million from the Centers for Disease Control and Prevention.